(Bloomberg) — US Treasuries stabilized on Friday after a turbulent week that saw traders confronted by the reality another interest-rate cut could be a long time coming.
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The US two-year yield was almost bang in line with where it ended last week at 4.29% after jumping 10 basis points earlier in the week. The 10-year yield was also little changed, trading just above 4.50%.
The debt market could get a boost later in the day if US retail sales for January come in slower due to frigid weather as expected. That would spur hopes for deeper policy easing this year, buoying appetite for government bonds. Treasuries already won some respite on Thursday after a report on producer prices calmed the surprise of a hot consumer inflation print that rattled the market mid-week.
A Bank of America Corp. survey published Friday showed investors have turned less bearish on US bonds, with fewer expecting the 10-year yield to peak above 5% this year, while more see it dipping below 4%. But participants also indicated a sharp decrease in conviction, a reflection of the muddied macro outlook.
“These are not easy markets to trade,” said Evelyne Gomez-Liechti, strategist at Mizuho International. She still prefers to sell meaningful rallies in US dollar rates.
Wednesday’s inflation numbers were a stark reminder that prices must cool further before the Federal Reserve can move on with cutting interest rates again. That easing path is now far from certain as President Donald Trump’s tariff threats stir fears of a global trade war.
Growing demand for inflation protection has helped fuel a rally in short-dated inflation-protected Treasuries. In the two-year tenor, the yield is on the brink of falling back through 1% for the first time since 2022.
Nicolas Trindade, senior portfolio manager at AXA Investment Managers, is cautious on US interest-rate risk, or duration, and prefers Europe instead. The firm does not expect the Fed to cut at all this year, in contrast to the 30 basis points or so of easing implied by overnight interest-rate swaps.
“The main risk for 2025 is a resurgence in inflation that will lead the Fed basically to hike interest rates,” he said, adding he loaded up on short-dated TIPs in the days following Trump’s re-election last November. “The market is definitely not priced for that.”
